What's in the Cards for Public Storage's (PSA) Q2 Earnings?

Public Storage PSA is slated to release second-quarter 2020 numbers on Aug 5, after the closing bell. The company’s quarterly results might display year-over-year declines in revenues and funds from operations (FFO) per share.

In the last reported quarter, this self-storage real estate investment trust (REIT) reported an in-line performance in terms of FFO per share. The company’s quarterly performance reflected the favorable impact of higher revenues for its same-store facilities, resulting from higher realized annual rent per occupied square foot. Nevertheless, this was offset by elevated cost of operations from its same-store facilities, comprising elevated marketing costs and property tax expenses.

Over the trailing four quarters, the company surpassed estimates on one occasion, met in another and missed in the other two, the average negative surprise being 0.17%. This is depicted in the graph below:

Public Storage Price and EPS Surprise

Public Storage Price and EPS Surprise

Public Storage price-eps-surprise | Public Storage Quote

Let’s see how things have shaped up for this announcement.

Key Factors

In the second quarter, Public Storage is likely to have benefited from solid presence in key cities and high brand value. Additionally, the self-storage industry has continued to gain from favorable demographic changes. Specifically, migration and downsizing trend, and increase in the number of people renting homes have escalated the needs of consumers to rent spaces at a storage facility to park their possessions.

In addition, the company has been capitalizing on growth opportunities. From the beginning of 2013 through Mar 31, 2020, it has acquired 349 facilities, with 24.5 million net rentable square feet from third parties for $3.3 billion. In addition, it opened the newly-developed and expanded self-storage space for a total cost of $1.6 billion, adding 15.3 million net rentable square feet. Such acquisition and expansion initiatives are also anticipated to have stoked growth during the period under consideration.

However, the pandemic has been wreaking havoc and the self-storage market too has not been immune to the impact of the outbreak. During the quarter, there was a substantial reduction in demand for self-storage space, resulting in a decline in move-in volumes, despite lower move-in rental rates. Public Storage has also temporarily curtailed its existing tenant rate increase program. Furthermore, stress on consumers’ financial capacity will likely have triggered in rent collection issues. As such, same-store rental income is likely to have borne the brunt.

Further, with the stay-at-home orders, customers’ activities, in particular move-ins, have been affected. Also, there have been increased absentee rates for on-site property managers dealing with health, childcare and other issues. Amid these, the company has opted for a temporary $3.00 hourly wage increase and enhancements of paid time-off benefits to effectively all of its property managers. Moreover, the company has implemented the use of masks, gloves, and social distancing practices by property managers. Such moves are expected to have inflated operating expenses.

Moreover, the company operates in a highly fragmented market in the United States, with intense competition from numerous private, regional and local operators. In addition, there is a development boom of self-storage units in several markets. This high supply is likely to have fueled competition, curbed its power to raise rents and turned on more discounting in the quarter under consideration.

The Zacks Consensus Estimate for quarterly revenues is currently pinned at $704.9 million, suggesting a 0.9% year-over-year decline.

Furthermore, Public Storage’s activities during the quarter were inadequate to gain analysts’ confidence. The Zacks Consensus Estimate for the second-quarter FFO per share has been revised 1.2% downward to $2.52 in a month’s time. It also calls for a 4.6% year-over-year decline.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Public Storage this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Public Storage carries a Zacks Rank #3 and has an Earnings ESP of +0.41%.

Stocks to Consider

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

VEREIT Inc. VER, slated to release results on Aug 6, has an Earnings ESP of +3.33% and carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Trust of America, Inc. HTA, set to report quarterly numbers on Aug 6, currently has an Earnings ESP of +0.96% and carries a Zacks Rank of 3.

National Storage Affiliates Trust NSA, scheduled to announce earnings figures on Aug 6, has an Earnings ESP of +0.44% and holds a Zacks Rank of 3 currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Public Storage (PSA): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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